Great Tech Startup Cities: Tel Aviv

Are you searching for the next Silicon Valley? A new ground zero from which to launch your game-changing tech venture? An environment that is business-friendly yet creatively charged and caters to the needs of today’s entrepreneur?

Join the club. With growth slowing or stagnant in many economies around the world, there are plenty of forward-thinking executives, young entrepreneurs and investors on the hunt for hotbeds of original thinking and new-business creation from which to launch their next venture.

What is everyone looking for? Ideally, a city with …

A low burn rate (low rent, low food prices)

Access to a relevant but low-cost workforce

Fast and cheap Internet service

A developed local infrastructure — transportation, access to food, consumer services, etc.

In short, Startup Utopia would be a cheap, hassle-free and creatively nourishing place to live — an inherently supportive environment where cash-strapped entrepreneurs could get their business off the ground on a shoestring, find amenable mentors and advisors and have unfettered access to the funding needed to take their product to the top.

Unfortunately, there is no such place. Not entirely, anyway. Every startup hub has good and bad qualities, and would-be entrepreneurs have to weigh the pros and cons of each to determine which startup ecosystem is best for their project.

One location that has the tech world talking: Tel Aviv, Israel.

Startup City

President Obama once called Tel Aviv the home of the “future world economy,” and with good reason. The city has a long tradition of entrepreneurship, a highly developed funding ecosystem, a vibrant entrepreneurial culture and a broad talent base for its size and isolated location.

It also has the highest density of startups in the world. By some counts, Israel is currently home to 4,800 startups and at least two dozen accelerator/incubator programs, including some run by Microsoft and Google. Tel Aviv alone boasts more than 700 early-stage startups and some 1,200 high-tech firms — and the number is constantly growing.

For this reason, research company Startup Genome named Tel Aviv’s startup ecosystem the second best in the world behind Silicon Valley, beating out places commonly thought of as startup hotbeds, such as Los Angeles, Seattle and New York.

Why Is Tel Aviv So Popular?

It’s a cultural thing, says Yaniv Feldman, founder and editor-in-chief of Geektime.com, sort of a Mashable for the Middle East. He argues that Israelis have turned their biggest hurdles — military conflict, a small and isolated geographic location and the lack of natural resources — into the country’s biggest assets, thus forming a cornerstone for an inventive culture: “Israelis have always been forced to be imaginative, to do more with less, to work hard to achieve our goals. Outsiders seem to be inspired by the culture that takes risks. It invites them to take risks, too.”

While that might be true, it is a fact that Tel Aviv attracts plenty of outsiders looking to take advantage of the skilled labor and sympathetic bureaucracy. The local government is actively transforming the city into a place that draws young entrepreneurs. For instance, political leaders are working to install WiFi in all public areas and looking at ways to ease residency restrictions by creating a Startup Visa, allowing foreigners with creative muscle to establish temporary citizenship in Tel Aviv more easily. The hope is that an influx in foreign innovators will bring in foreign investment. And it’s working.

Israel is cultivating a robust venture capital (VC) ecosystem. “We have something like 16 or 17 startup accelerators, which is huge for a country this small, and 25 or so active VCs that actually do investment,” says Feldman. Though the local VC scene remains relatively small compared to the U.S. and Europe, there is plenty of money to be spread — both early stage and late stage. The country’s startups attracted more than $2.14 billion in funding last year alone, a quarter of it from local private equity firms.

Startup success stories: Waze (the crowd-sourced navigation app purchased by Google for more than $1 billion); Trusteer (a cybersecurity company that was recently purchased by IBM for approximately $800 million, according to TechCrunch); and My Heritage, the second-largest ancestry database service on the planet.

What Are Some Of The City’s Challenges?

The biggest drawback to Tel Aviv is Israel’s high cost of living. Just a few months ago, tens of thousands of Israelis took to the streets nationwide to protest rising housing prices — and that’s not all they’ve been protesting. Food is expensive. Transportation is expensive. Everything is expensive. “There is a lot of work to be done in this regard,” says Feldman. “Israel is a country that cannot support itself naturally. It must bring in goods and services from the outside world to survive. That is costly.”

In addition, the scene is too dependent on tech-driven exits — i.e., a company that is successfully sold just a few years after startup, before it has reached its true potential — rather than on big market winners that continue to grow in Tel Aviv.

But even with its challenges, Tel Aviv continues to attract innovative technology companies looking to make their mark on the world. Of course Tel Aviv isn’t the only city to consider. Here are other cities in our series on tech-friendly startup locations:

For nearly two decades, New York-based writer and editor Chuck Tannert has covered everything from arts and leisure to fashion, fitness, politics and technology. His work has appeared in many print and online outlets, including CNET, Men’s Journal, Popular Mechanics, Popular Science, Wired and many more.

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